Pagliuca sees a role for lobbyists

But Bain Capital Partners, where he has been a senior managing partner and made his huge fortune, has spent millions to hire high-powered Washington lobbyists to protect its special interests on Capitol Hill.

It’s an aspect of his professional background that is in sharp contrast to his effort to portray himself to voters as a progressive populist Democrat and reformer.

A campaign spokesman said Pagliuca’s tough talk about the flow of lobbyist donations to politicians should not be seen as an attack on lobbyists participating in the legislative process.

“Steve appreciates the role lobbyists play in educating policy makers on the impact of legislation under consideration,’’ his press aide Will Keyser said. “At the same time, he believes it is wrong for lobbyists and special interest PACs to be a critical source of campaign funding for members of Congress.’’

But Pagliuca’s embrace of a key campaign finance reform ignores the role he and his colleagues have played in using those same elite lobbying entities to advance their special interests in Washington. Keyser could provide no evidence that Pagliuca, who has been on the senior management team at Bain, objected to Bain-hired lobbyists donating to Washington politicians the company was trying to influence.

“As one of 69 managing directors at Bain Capital, Steve was aware of, but not actively involved in, the firm’s government relations efforts,’’ Keyser said.

With the $4 million he has spent on ads and direct mailing to voters, Pagliuca has repeatedly hammered home his vow not to take money from special interests and lobbyists, who are among the most lucrative sources of campaign donations for members of Congress. He says that his policy of not taking those donations frees him of any obligations to those special interests.

Trying to burnish his progressive and reform image, he also warns of the evils of special interest influence.

“Washington lobbyists are working overtime to make sure that real reforms never become law,’’ Pagliuca says in a recent mailing. “Special interest groups will always hire lobbyists to game the system in their favor by opening loopholes, loosening regulations, and taking the teeth out of enforcement.’’

That is what Bain and other private equity firms have been trying to do. These efforts have paid off in one significant area: Thanks to their lobbyists, the firms’ senior executives continue to pay federal taxes at rates far below those applied to most taxpayers. A significant portion of their profits is taxed as capital gains, at a 15 percent rate, compared with the 35 percent rate they would pay if it were classified as regular income. Even a taxpayer making just $34,000 a year would have to pay a rate of 25 percent.

For the last two years, the private equity companies have been able to stall a proposal from the Democratic House - and more recently from President Obama - that would tax those earnings as regular income.

According to federal disclosure records, Bain paid nearly $2 million to two major Washington lobbying firms - Public Strategies and Akin, Gump - over the past three years to influence Congress on health care reform, financial regulation, and taxation of private equity funds.

Bain also joined 11 other of the nation’s largest funds to create the Private Equity Council in late 2006. One of the group’s top priorities is killing the Democrats’ proposal to tax private equity profits at a higher rate. It has also sought to blunt some of the Democrats’ stricter financial regulatory proposals. The council has paid $8.5 million since 2007 to hire a half-dozen of Washington’s most influential lobbying firms to look after the equity funds’ interests, the records show.

Bain, on its own, also paid $310,000 last year to Public Strategies for work that included pressuring lawmakers on the tax issue. The showdown came at the House Financial Services Committee, which approved a bill that would treat some of the equity funds’ profits as income. The full House passed the measure in late 2007, but the Senate never took up the proposal.

As a candidate, Pagliuca is not entirely clear where he stands on the issue. He says he wants to raise the rate on all capital gains earnings to 20 percent - the level they were at before tax cuts enacted under the Bush administration. But he does not embrace the push by Democrats and the Obama administration to change the tax treatment on private equity funds’ earnings to ordinary income.

Pagliuca has compiled what is estimated to be a $400 million fortune since he joined Bain in 1989.

“Steve believes any additional changes should be studied as part of a comprehensive set of reforms aimed at raising additional revenue without hurting investment,’’ said Keyser. “Steve’s view is that any changes . . . need to be weighed against the potential negative impact on capital formation for clean energy, oil and gas, real estate, and venture capital.’’

The Private Equity Council has backed legislation requiring hedge funds and equity funds to register with the Securities and Exchange Commission. Bain Capital, which declined to comment for this story, registered with the commission in April 2008 as an investment adviser.

Pagliuca has issued a plan for financial regulation changes in which he calls for the funds to register with the SEC. He also calls for “greater transparency’’ by hedge funds and private equity firms such as Bain, but he offers no details on how that should be accomplished.

When the House worked last month to craft legislation to force those funds to register, the Private Equity Council balked at some of the broader provisions concerning disclosures.

The Council president, Douglas Lowenstein, urged the House Financial Services Committee to strike some disclosure requirements from the bill. He outlined to the committee significant concerns, mostly centered around its proposals to create transparency and require detailed disclosures to third parties in financial deals, such as banks and creditors, saying they were “troubling.’’

“Requiring open-ended disclosures to these third parties . . . is highly problematic,’’ Lowenstein said in testimony to the panel, claiming it “could expose proprietary information and trade secrets to those with whom we compete.’’